Turist-Cambio Viagens Turismo LTDA was a Brazilian currency exchange company. Kesten Development corp., a British Virgin Islands corporation, was its subsidiary. In the 1990s, three of the companies’ principals, Antonio Pires de Almeida, Ruriko Inoue, and Roseli Ciolfi, were investigated for money laundering in the United States and Brazil. In 1999, the US government seized more than $8 million from the two companies’ bank accounts in the US, and it brought a forfeiture action in New Jersey. Because the government failed to prove that the funds were directly traceable to illegal activities, the case was dismissed and the money ordered returned to Kesten and Turist-Cambio. But before the funds were return, the Federal Court in Curitiba, Brazil, issued a seizure order that covered the two accounts, and the Brazilian government brought criminal charges against the principals. The US District Court for the District of Columbia enjoined the return of the funds pending the outcome of the Brazilian criminal case, but its injunction was later vacated for reasons that are unimportant. Ultimately the Brazlian court convicted Pires de Almeida, Inoue, and Ciofli of various crimes and found that the funds in Kesten’s US bank account were the proceeds of the crimes and that Kesten was merely a shell company that should be disregarded, though the Brazilian judgment was still on appeal and its execution stayed at the time of today’s decision.

While all of this was going on, the US government became aware that there were conflicting claims to the money that had been seized. Brazil claimed the money based upon its seizure order. Barry Fischer, a lawyer, claimed an interest on account of his unpaid legal bills incurred in the successful defense of the forfeiture case. And Tammy Fu and Eleanor Fischer, the liquidators of Trade and Commerce Bank of the Cayman Islands, claimed an interest on account of a default judgment from the British Virgin Islands courts, which had already been recognized in the Bankruptcy Court for the Southern District of New York, that arose out of a claim that Kesten had knowingly received funds stolen from TCB. The United States brought a statutory interpleader action. Ultimately most of the claimants settled with each other, leaving only the claims of Brazil and the liquidators to the funds in Kesten’s account.

Brazil and the liquidators filed cross-motions for summary judgment. One of the key factual issues was whether Kesten was in fact a mere shell company, as the Brazilian court had found. The key question was whether the Brazilian court’s decision regarding Kesten should be recognized and thus collaterally estop the liquidators from claiming an interest in the funds based on Kesten’s interest, which, if the Brazilian decision is given effect, should be disregarded.

In the District Court, the judge granted summary judgment to Brazil on the grounds that the Brazilian judgment was entitled to recognition even though it would not have had preclusive effect in Brazil, and the liquidators appealed.

The key point was the penal law rule, which prohibits “one sovereign enforcing another nation’s criminal laws.” The District Court dealt with this issue in its decision, though I didn’t focus on it in the prior post.

On appeal, the Second Circuit held that the judge had erred, because the Brazilian judgment was a criminal forfeiture judgment and thus the penal law rule should have prevented the US courts from granting it preclusive effect. The court gave an overview of the rule, which, in the United States, stemmed from The Antelope, 23 U.S. (10 Wheat.) 66 (1825) (per Marshall, C.J.): “The Courts of no country execute the penal laws of another.” Congress made an exception to the rule. Under 28 U.S.C. § 2467, a foreign state seeking enforcement of a “forfeiture or confiscation judgment” may make a request to the Attorney General. 1 The Attorney General then determines whether to certify the request. His determination is unreviewable. If he certifies the request, then the United States may apply to a court for enforcement of the judgment, and the court must enforce it unless it finds that:

the judgment was rendered under a system that provides tribunals or procedures incompatible with the requirements of due process of law;

the foreign court lacked personal jurisdiction over the defendant;

the foreign court lacked jurisdiction over the subject matter;

the foreign nation did not take steps, in accordance with the principles of due process, to give notice of the proceedings to a person with an interest in the property of the proceedings in sufficient time to enable him or her to defend; or

the judgment was obtained by fraud.

Here, because Brazil had not made a request under the statute, its claim failed. But Brazil represented that it would promptly make such a request, and so the court reversed and remanded with instructions to permit Brazil a reasonable amount of time to make its request to the Attorney General, and if it failed to do so, to determine which party had a right to the funds.

Such a judgment is one that requires the defendnat”(A) to pay a sum of money representing the proceeds of an offense described in Article 3, Paragraph 1, of the United Nations Convention, any violation of foreign law that would constitute a violation or an offense for which property could be forfeited under Federal law if the offense were committed in the United States, or any foreign offense described in section 1956 (c)(7)(B) of title 18, or property the value of which corresponds to such proceeds; or (B) to forfeit property involved in or traceable to the commission of such offense.” 28 U.S.C. § 2467(a)(2). ↩

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